SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(MARK ONE)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000, or
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
COMMISSION FILE NUMBER 0-19622
WTC INDUSTRIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 38-2308668
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(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
150 MARIE AVENUE EAST, WEST ST. PAUL, MINNESOTA 55118-4002
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(Address of Principal Executive Offices) (Zip Code)
(651) 554-3140
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing required for the past 90 days. Yes _x_ No ___.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
1,480,198 shares of Common Stock as of August 4, 2000
Transitional Small Business Disclosure Format (check one):
Yes _____; No __x__
1
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WTC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Operations
Six Months Ended June 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 15
2
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------ ------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,189 $ 11,043
Accounts receivable, net of allowance for doubtful accounts
of $9,000 1,457,135 533,174
Inventories (Note 3) 556,850 356,096
Prepaid expenses and other 52,727 43,950
------------ ------------
TOTAL CURRENT ASSETS 2,067,901 944,263
PROPERTY AND EQUIPMENT 1,808,649 1,025,352
Less accumulated depreciation 763,372 700,012
------------ ------------
1,045,277 325,340
OTHER ASSETS 1,400 5,191
------------ ------------
$ 3,114,578 $ 1,274,794
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
--------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,332,574 $ 139,132
Accounts payable 1,215,357 486,737
Customer deposits 53,254 5,438
Accrued interest payable 226,199 157,552
Accrued expenses - other 388,520 371,321
------------ ------------
TOTAL CURRENT LIABILITIES 3,215,904 1,160,180
LONG-TERM LIABILITIES
Accrued minimum purchase commitments 292,400 292,400
Long-term debt, net of current maturities 4,916,233 5,405,287
------------ ------------
5,208,633 5,697,687
------------ ------------
STOCKHOLDERS' DEFICIT (Note 4)
Common stock 148,020 116,936
Additional paid-in capital 12,554,414 11,800,230
Receivable from officer on issuance
of common stock (30,000) (30,000)
Accumulated deficit (17,982,393) (17,470,239)
------------ ------------
(5,309,959) (5,583,073)
------------ ------------
$ 3,114,578 $ 1,274,794
============ ============
</TABLE>
See notes to consolidated condensed unaudited financial statements.
3
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WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
NET SALES $ 1,958,131 $ 1,483,744
COST OF GOODS SOLD 1,451,589 976,434
------------ ------------
GROSS PROFIT 506,542 507,310
OPERATING EXPENSES
Selling, general and administrative 389,982 296,418
Research and development 228,958 42,790
------------ ------------
618,940 339,208
------------ ------------
INCOME (LOSS) FROM OPERATIONS (112,398) 168,102
NONOPERATING INCOME (EXPENSE)
Interest expense (83,004) (82,177)
Other income (expense), net -- (2,839)
------------ ------------
(83,004) (85,016)
------------ ------------
NET INCOME (LOSS) $ (195,402) $ 83,086
============ ============
PER COMMON SHARE DATA - BASIC & DILUTED
EARNINGS (LOSS) PER SHARE - BASIC & DILUTED $ (0.13) $ 0.07
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC 1,472,863 1,169,364
============ ============
DILUTED N/A 1,169,539
============ ============
</TABLE>
See notes to consolidated condensed unaudited financial statements.
4
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WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
NET SALES $ 3,144,284 $ 2,665,495
COST OF GOODS SOLD 2,300,422 1,803,230
------------ ------------
GROSS PROFIT 843,862 862,265
OPERATING EXPENSES
Selling, general and administrative 793,725 601,377
Research and development 417,727 90,114
------------ ------------
1,211,452 691,491
------------ ------------
INCOME (LOSS) FROM OPERATIONS (367,590) 170,774
NONOPERATING INCOME (EXPENSE)
Interest expense (144,564) (164,506)
Other income (expense), net -- (7,107)
Gain (loss) on disposal of fixed assets -- 1,090
------------ ------------
(144,564) (170,523)
------------ ------------
NET INCOME (LOSS) $ (512,154) $ 251
============ ============
PER COMMON SHARE DATA - BASIC & DILUTED
EARNINGS (LOSS) PER SHARE
BASIC & DILUTED $ (0.37) $ 0.00
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC 1,372,781 1,161,758
============ ============
DILUTED N/A 1,161,846
============ ============
</TABLE>
See notes to consolidated condensed unaudited financial statements.
5
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WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (512,154) $ 251
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 63,360 55,061
(Gain) Loss on disposal of fixed assets -- (1,091)
Accretion of long-term debt discount 19,678 9,086
Changes in operating assets and liabilities:
Accounts receivable (923,961) (250,812)
Inventories (200,754) 151,754
Current and other assets 30,014 (205)
Accounts payable 728,620 (158,184)
Accrued expenses 133,662 89,875
------------ ------------
Net cash used in operating activities (661,535) (104,265)
------------ ------------
INVESTING ACTIVITIES
Proceeds from sales of equipment -- 1,091
Purchases of property and equipment (783,297) (83,162)
------------ ------------
Net cash used in investing activities (783,297) (82,071)
------------ ------------
FINANCING ACTIVITIES
Proceeds of loans from chairman -- 350,000
Proceeds from bank 1,250,000 --
Proceeds from issuance of common stock 257,500 --
Payments on long-term obligations (72,522) (21,807)
------------ ------------
Net cash provided by financing activities 1,434,978 328,193
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (9,854) 141,857
CASH AND CASH EQUIVALENTS:
Beginning of period 11,043 25,261
------------ ------------
End of period $ 1,189 $ 167,118
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 75,918 $ 112,897
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES -
Common stock issued on conversion of debt $ 450,000 --
Bank financing converted to promissory note to chairman $ 750,000 --
Common stock issued for payment of rent $ 35,000 $ 17,500
Warrants issued with debt restructure $ 42,768 $ 74,000
</TABLE>
See notes to consolidated condensed unaudited financial statements.
6
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WTC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED
FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND MANAGEMENT'S PLANS REGARDING OPERATING
LOSSES AND LIQUIDITY
BUSINESS - WTC Industries, Inc., (the "Company") designs, manufactures, and
markets water filtration and purification products for the potable water market.
The potable water market includes residential, commercial, and food service. The
Company's filtration products remove or reduce many undesirable contaminants
found in water including lead, chlorine, cryptosporidium, giardia, bad taste and
odor. In addition, the Company has a family of purification products that have
the added benefit of devitalizing or removing bacteria, viruses, and parasites
with the use of the Company's patented PentaPure(R) iodinated resin technology.
Consumer demand is driven both by the consumers desire to improve the taste and
quality of their drinking water and by heightened concerns of regulatory
agencies. Outbreaks of cryptosporidium and giardia cyst and, in some cases,
bacteria and virus contamination, have raised the health concerns of consumers
in the U.S. and other major developed countries. Third world countries' drinking
water quality has been found to be severely inadequate. In the food service
industry, restaurants have become increasingly aware of the need for water
filtration to control the quality and taste of the water used in their
businesses.
The Company anticipates accelerated growth in coming years based on the
following growth strategies:
NEW PRODUCT DEVELOPMENT AND TECHNOLOGY INTEGRATION FOR THE OEM MARKET. Recently,
the Company has developed specialized high value-added products for three major
OEM customers. The Company anticipates that it will continue to grow this market
by providing products that it believes are superior in design, function and
quality. The Company is in the process of designing and testing a long-term use
purification device that utilizes the PentaPure(R) technology for the U.S.
market. In addition, the Company intends to continue to develop its ability to
integrate other filtration and purification technologies into its products.
CONTINUED IMPROVEMENT IN OPERATING EFFICIENCIES. The Company believes it can
improve gross profit margins by increasing revenues and improving production
capabilities and efficiencies. The Company has implemented new cost controls in
the areas of purchasing and inventory control. In addition, new production
methods and automation have increased both output and quality while reducing
labor costs.
7
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GOING CONCERN - The accompanying financial statements have been prepared on a
going-concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
For the six month period ended June 30, 2000, the Company incurred a net loss of
$512,154, and cash used in operating activities was $661,535. In addition, as of
June 30, 2000, the Company has a deficiency in working capital of $1,148,003 and
an accumulated deficit of $17,982,393. These factors, among others, indicate
that the Company may not be able to continue as a going concern for a reasonable
period of time.
The Company's working capital requirements during the first six months of 2000
were met principally through borrowings from a bank for $1,250,000 and the
issuance of Company common stock totaling $257,500. Management believes that the
Company's existing cash position, collection of accounts receivable and other
available sources of liquidity are sufficient to meet current and anticipated
requirements for a reasonable period of time.
Management's plans for the Company to continue as a going concern include (a)
increasing sales to the domestic OEM refrigerator water filtration market, (b)
continuing research, development and commercialization of its disinfection
technology, and (c) continued improvement in the Company's production
processes and quality controls to increase gross profit margins. However, there
can be no assurance that these plans will be successful.
The condensed consolidated unaudited financial statements do not include any
adjustments related to the recoverability and classification of recorded asset
amounts or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated unaudited financial statements of WTC
Industries, Inc. and Subsidiaries have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission, and reflect all adjustments, consisting of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
presentation of financial position, results of operations, and cash flows for
the periods shown. These statements are condensed and do not include all
information required by generally accepted accounting principles. It is
recommended that these financial statements be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1999, which are included in the Company's Annual Report on Form
10-KSB.
8
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3. INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING: June 30, 2000 December 31, 1999
------------------------------------- ------------- -----------------
Raw Materials $ 445,057 $ 233,291
Work-in-process 8,432 5,849
Finished Goods 103,631 116,956
---------- ----------
$ 556,850 $ 356,096
========== ==========
The total inventory reserve as of June 30, 2000 and December 31, 1999 is
$730,000 and $739,000, respectively.
4. COMMON AND PREFERRED STOCK
COMMON STOCK - At June 30, 2000 and December 31, 1999, the Company had
15,000,000 shares of $.10 par value common stock authorized, with 1,480,198 and
1,169,364, respectively, shares issued and outstanding.
PREFERRED STOCK - At June 30, 2000 and December 31, 1999, there were 2,000,000
shares of the Company's 9% convertible, cumulative, nonvoting, $1 par value
preferred stock authorized and zero (0) shares issued and outstanding.
5. COMMITMENTS AND CONTINGENCIES
MINIMUM PURCHASE COMMITMENT - The Company has an agreement with a supplier that
expires in June 2002 under which the Company is obligated to purchase a minimum
of $172,500 annually of its cyst filter requirements for certain of its
products. The Chairman personally guarantees the Company's performance under the
contract, subject to a $100,000 limitation on the guaranty. The Company has
accrued the remaining estimated commitment not likely to be fulfilled under this
contract. At June 30, 2000 and December 31, 1999, $517,500 is accrued, of which
$225,100 is included in current liabilities.
LICENSE AGREEMENT - The Company manufactures and markets certain of its products
pursuant to a license agreement with KSURF, as amended July 1, 1998. The Company
pays a royalty on annual sales of certain products equal to 3% of the first
$1,000,000 of net sales and 2% of the excess, due quarterly, subject to a
minimum annual royalty of $25,000 per year. The license agreement will expire on
or before the final expiration date of the last patent or patent application
contained in the patent rights. The Company is presently obligated to pay KSURF
40% of any royalties or payments received for sublicensing certain patent rights
contained in the license agreement. Royalty expenses were $6,250 and $12,500 for
the three and six month periods ended June 30, 2000 and 1999.
9
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ARRANGEMENTS WITH SUPPLIERS - The Company utilizes the services of an
independent contractor to manufacture iodinated resin that is incorporated into
some of the Company's products. Certain techniques used to manufacture the
iodinated resins were developed by and are the property of the supplier. Under
the terms of an agreement, the Company has agreed that if it elects to buy
iodinated resin from an outside vendor, it will buy iodinated resin only from
this supplier. The supplier has agreed to sell the iodinated resin only to the
Company and one other party. The other party does not compete with the Company
in any of its product applications.
6. RELATED-PARTY TRANSACTIONS
Tapemark Company ("Tapemark"), of West St. Paul, Minnesota, provides labels for
the Company's products. Mr. Klas, the Company's CEO, Chairman and largest
stockholder, is also the CEO and Chairman of the Board for Tapemark. During the
three and six month periods ended June 30, 2000, the Company paid Tapemark a
total of $19,000 and $32,000, respectively, compared to $30,000 and $58,000,
respectively, in 1999.
The Company also leases manufacturing and office space from Tapemark under a
two-year noncancelable lease expiring February 28, 2001. The Company will make
no payments to Tapemark for general utilities, pro rata taxes and special
assessments. In lieu of cash payments for rent, the Company issued a total of
46,667 shares of common stock at its fair market value for the term of the
lease.
7. NOTES PAYABLE AND LONG TERM OBLIGATIONS
On March 29, 2000, the Company and Mr. Klas co-signed a new credit agreement
with the bank under which the bank extends the Company a new term loan of
$750,000 and a new revolving credit facility of $700,000. On June 28, 2000, the
bank agreed to increase the revolving credit facility from $700,000 to
$1,400,000. There were no additional transaction expenses or fees related to the
loan amendment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
GOING CONCERN - The accompanying financial statements have been prepared on a
going-concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
For the six month period ended June 30, 2000, the Company incurred a net loss of
$512,154, and cash used in operating activities was $661,535. In addition, as of
June 30, 2000, the Company has a deficiency in working capital of $1,148,003 and
an accumulated deficit of $17,982,393. These factors, among others, indicate
that the Company may not be able to continue as a going concern for a reasonable
period of time.
10
<PAGE>
The Company's working capital requirements during the first six months of 2000
were met principally through borrowings from a bank for $1,250,000 and the
issuance of Company common stock totaling $257,500. The Company estimates that,
for the remainder of 2000, it will have working capital needs of approximately
$1,000,000 to fund capital expenditures. Management believes that the Company's
existing cash position, collection of accounts receivable and other available
sources of liquidity are sufficient to meet current and anticipated requirements
for a reasonable period of time.
Management's plans for the Company to continue as a going concern include (a)
increasing sales to the domestic OEM refrigerator water filtration market, (b)
continuing research, development and commercialization of its disinfection
technology, and (c) continued improvement in the Company's production processes
and quality controls to increase gross profit margins. However, there can be no
assurance that these plans will be successful.
The Company is also evaluating its available options to raise capital. These
options include, but are not limited to, private placements of debt or equity
securities to accredited investors, registered offerings of the Company's common
stock and strategic partnership or joint venture arrangements. In addition, the
Company will evaluate the possibility of converting to equity some or all of its
outstanding short term and long term debt. There is no assurance that the
Company will be able to obtain additional financing, or that the terms of any
such financing will be acceptable to the Company. If the Company's efforts to
raise additional capital are not successful, the Company's operations may be
negatively impacted.
The condensed consolidated unaudited financial statements do not include any
adjustments related to the recoverability and classification of recorded asset
amounts or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1999
NET SALES. For the three month period ended June 30, 2000, the Company had
record net sales of $1,958,131, an increase of 32.0% from 1999 sales of
$1,483,744. For the six month period ended June 30, 2000, the Company had net
sales of $3,144,284, an increase of 18.0% from 1999 sales of $2,665,495.
International sales represented approximately 13% of total year-to-date net
sales for both 2000 and 1999.
The increase in total net sales is attributed to increased sales to the
appliance filter market. The Company's largest customer, for the first six
months, had total net sales of $2,065,000 or 66% of total net sales in 2000
compared to $1,845,000 or 69% of total net sales for the same period in 1999. In
addition during the second quarter, the Company began shipments to a new OEM
appliance customer. The Company anticipates that sales in the last half of 2000
will increase because of this new relationship.
11
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GROSS PROFIT. For the three and six month periods ended June 30, 2000, the
Company recognized a gross profit of $506,542 and $843,862, respectively,
representing 25.9% and 26.8% of net sales, respectively. During the same periods
in 1999, the Company recognized a gross profit of $507,310 and $862,265,
respectively, representing 34.2% and 32.3% of net sales, respectively. The
decrease in gross profit for both the second quarter and year to date is
primarily attributed to start up costs associated with a new OEM customer and
higher production overhead costs incurred for purposes of expanding existing
manufacturing capabilities for the appliance filter market.
OPERATING EXPENSES. Selling, general, and administrative expenses for the three
and six month periods ended June 30, 2000, were $389,982 and $793,725,
respectively, representing 19.9% and 25.2% of net sales, respectively. Selling,
general and administrative expenses were $296,418 and $601,377, representing
20.0% and 22.6% of net sales, respectively, for the same periods in 1999. The
increase in the dollar amount of spending in 2000 is primarily due to increases
in employee and related benefit expenses, selling related expenses, and
professional fees.
Research and development costs were significantly higher in 2000 than in 1999
because of new product development for both the OEM and disinfection markets.
The Company anticipates that research and development spending will remain at
current levels for the remainder of 2000 as the Company pursues EPA registration
for a long-term point-of-use water purification system for the U.S. market.
NONOPERATING EXPENSES. Interest expense was $83,004 and $144,564, respectively,
for the three and six month period ending June 30, 2000. During the same periods
in 1999, interest expense was $82,177 and $164,506, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements during the first six months of 2000
were met principally through bank loans totaling $1,250,000 and the issuance of
Company common stock for $257,500. As of June 30, 2000, the Company had a
working capital deficit (total current liabilities in excess of total current
assets) of $1,148,003 compared with a working capital deficit of $215,917 as of
December 31, 1999. The substantial increase in the working capital deficit is
principally due to (1) the reclassification of the Company's outstanding
promissory note to the chairman of the board in the principal amount of
$750,000, which matures on April 1, 2001, from a long-term liability to a
short-term liability and, (2) bank loans totaling $500,000 which mature on April
1, 2001. Management believes that the Company's existing cash position,
collection of accounts
12
<PAGE>
receivable and other available sources of liquidity are sufficient to meet
current and anticipated requirements for a reasonable period of time.
For the six month period ended June 30, 2000, cash decreased $9,854, primarily
due to cash used in operating activities of $661,535 and cash used in investing
activities of $783,297, which was essentially offset by cash provided by
financing activities of $1,434,978. Significant cash uses by operating
activities included increases in accounts receivable of $923,961 and inventory
of $200,754, partially offset by increases in accounts payable of $728,620 and
accrued expenses of $133,662. Net cash used by investing activities consisted
primarily of purchases of property and equipment of $783,297. Net cash provided
by financing activities included bank loans totaling $1,250,000 and the issuance
of Company common stock of $257,500, partially offset by payments on long-term
debt of $72,522.
For the six month period ended June 30, 1999, cash increased $141,857, primarily
due to cash provided by financing activities of $328,193, which was essentially
offset by cash used in operating activities of $104,265 and cash used in
investing activities of $82,071. Significant cash uses by operations included an
increase in accounts receivable of $250,812 and a decrease in accounts payable
of $158,184, partially offset by an increase in accrued expenses of $89,875 and
a decrease in inventory of $151,754. Net cash used by investing activities
consisted primarily of purchases of property and equipment of $83,162. Net cash
provided by financing activities was from issuance of notes payable of $350,000,
partially offset by payments on long-term debt of $21,807.
At June 30, 2000, the Company has a $750,000 convertible promissory note to the
chairman of the board which matures on April 1, 2001. Interest accrues at the 30
day London Interbank Offered Rates (LIBOR rate) plus 2%, payable monthly, and
provides a right to convert the promissory note to shares of Company common
stock at a conversion price of $3.00 per share.
At June 30, 2000, the Company has $2,498,807 and $516,410 in principal of
promissory notes that were issued to Mr. Klas and Tapemark, respectively, for
working capital purposes in prior years. These notes mature on May 31, 2002.
Interest accrues at an effective interest rate of 4% and is payable on June 30
and December 31.
At June 30, 2000, the Company has loan agreements with a bank consisting of a
term loan of $750,000 and a revolving credit facility of $1,400,000, (increased
from $700,000 to $1,400,000 on June 28, 2000), both of which are co-signed by
the chairman. The term loan matures on May 31, 2002, accrues interest at a
floating 30-day LIBOR rate plus 2.5%, and is secured by all the Company's
business assets. The revolving loan matures on April 1, 2001 and accrues
interest at a floating 30-day LIBOR rate plus 2.0%, and is secured by all the
Company's business assets. Interest is payable monthly on both loans.
13
<PAGE>
At June 30, 2000, the Company has $1,310,364 in principal of promissory notes
that were issued in a private placement in 1994 that by their amended terms
mature on May 31, 2002. Principal and interest are paid in quarterly
installments.
The Company has an agreement with a supplier that expires in June 2002 under
which the Company is obligated to purchase a minimum of $172,500 annually of its
cyst filter requirements for certain of its products. Through December 31, 1999,
the Company has paid a total of $199,000 of its total estimated contract
obligation of $862,500. During 2000, the Company anticipates it will pay
approximately $225,100, which represents the remaining obligation for 1999 and
the obligation for 2000. Failure of the Company to perform under this agreement
could have a significant negative impact on the Company's financial resources.
EFFECTS OF INFLATION
The Company believes that during 1999 and 2000 inflation has not had a material
impact on the Company's business.
NOTIFICATION REGARDING FORWARD LOOKING INFORMATION
Except for historical information contained herein, certain statements are
forward looking statements that involve risks and uncertainties, including, but
not limited to, the results of financing efforts and sufficiency of working
capital requirements, product demand and market acceptance risks, customer mix,
the effect of economic conditions, the impact of competitive products and
pricing, product development, commercialization and technological difficulties,
supply constraints or difficulties, and actual purchases under agreements. The
actual results that the Company achieves may differ materially from these
forward looking statements due to such risks and uncertainties. Readers are
urged to carefully review and consider the various disclosures made by the
Company's other filings with the Securities and Exchange Commission that advise
interested parties of the risks and uncertainties that may effect the Company's
financial condition and results of operations.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The Company has borrowed certain sums from Mr. Klas and Tapemark for working
capital purposes. During 1999, Mr. Klas advanced the Company $400,000 in demand
promissory notes and also purchased a $50,000 promissory note owed by the
Company to another private noteholder. On February 29, 2000, the Company and Mr.
Klas agreed to convert this debt totaling $450,000 to 180,000 shares of the
Company's common stock. In conjunction with the debt conversion, Mr. Klas
purchased 100,000 shares of the Company's common stock for $250,000.
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On March 29, 2000, Mr. Klas assumed the Company's indebtedness of $750,000 to
its bank and the Company issued Mr. Klas a convertible promissory note in the
amount of the indebtedness. The new promissory note matures in one year and
provides a right to convert the indebtedness to shares of Company common stock,
at the discretion of the holder of the Note, at a conversion price of $3.00 per
share. In addition, Mr. Klas agreed to co-sign a new credit agreement with the
bank under which the bank extends the Company a new term loan of $750,000 and a
new revolving credit facility of $700,000. Also, Mr. Klas agreed to sign a
subordination agreement for all of his outstanding debt. In consideration
thereof, the Company issued to Mr. Klas a new stock warrant to purchase 80,000
shares of the Company's common stock for an exercise price of $3.125 per share
on or before March 1, 2004.
In conjunction with the above transaction, the Company issued the bank a new
stock warrant to purchase 15,000 shares of the Company's common stock for an
exercise price of $5.00 per share on or before March 29, 2004.
On April 1, 2000, the Company issued 23,334 shares of Common Stock for payment
of its 2000 rent obligation to the Tapemark Company. The Company leases
approximately 10,000 square feet of manufacturing and office space.
For the above stock transactions, the Company did not use any underwriters or
placement agents and no commissions were paid. The securities referred to above
were acquired by the recipients for investment purposes for their own account
and not with a view to a distribution. Based on these facts the Company relied
on the exemption provided section 4(2) of the Securities Act of 1933, as
amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of the report:
(a) EXHIBITS. The following exhibits are being filed as part of this
Form 10-QSB.
Exhibit
No. Title Method of Filing
------- ----------------------------------------- ----------------
27 Financial Data Schedule Filed Herewith
(b) Reports ON FORM 8-K.
No reports on Form 8-K were filed during the second quarter of 2000.
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SIGNATURES
In accordance with the Exchange Act, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: August 4, 2000 WTC Industries, Inc.
By: /s/ Robert C. Klas, Sr.
----------------------------------
Robert C. Klas, Sr.
Chief Executive Officer
By: /s/ Gregory P. Jensen
----------------------------------
Gregory P. Jensen
Chief Financial Officer
(Principal Accounting Officer)
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